‘Every time David Davis opens his mouth the pound falls because he is such a hard Brexiteer.’
Photograph: Matt Dunham/AP

A brief rally in the pound was quickly reversed on Wednesday after the government refused to make tariff-free access to the European Union’s single market a red line in Brexit negotiations with Brussels.

Sterling fell two cents to $1.21 on the currency markets in afternoon trading, reversing a jump to $1.23 overnight that followed Theresa May’s concession for parliament to hold a debate on the government’s stance on talks with the EU.

The U-turn in agreeing to a debate initially lifted markets, but the refusal of ministers to clarify the government’s position provoked a swift reversal in sentiment and the pound ended the day at $1.22.

The pound has tumbled since last week when in her party conference speech May appeared to put taking control over immigration above retaining access to the single market on the current tariff-free terms.

According to Bank of England figures, which compare the pound to a basket of major currencies, the UK’s currency has fallen to its lowest level since the 1970s, when records began.

The figures show that the value of sterling has fallen to below the levels seen in the aftermath of the 2008 banking crisis and the slump in the pound in 1992 that followed “Black Wednesday” and the UK’s exit from the European Union exchange rate mechanism.

A row between Tesco and Unilever gave a foretaste of the likely disputes between suppliers and retailers after reports that the Dove soap manufacturer attempted to push through an across the board 10% rise in the price of its branded goods, which was resisted by the supermarket chain.

Mike Rake, the chairman of BT, said imported mobile phones and broadband home hubs were already 10% more expensive and the cost would need to be passed on to consumers in the near future.

Jordan Rochester, a Nomura analyst, said the pound was likely to continue its decline over the coming weeks.

“While Theresa May’s acceptance that parliament should scrutinise her plan for Brexit in part provides for some form of a pre-article 50 ‘checks and balances’ procedure, it is unlikely to result in a detailed plan being revealed nor change the current government stance,” he said.

Kathleen Brooks, research director at the financial trading firm City Index, said: “Every time Davis opens his mouth the pound falls because he is such a hard Brexiteer. But ultimately it will be May and Philip Hammond that make the decisions and investors were trying to work out which way they are going to go.”

She said a rise in prices could spook backbench Tory MPs who want to break free from the EU to cut tariffs and lower prices in the shops.

“It could be that the Bank of England starts to raise rates to calm inflation, making the situation for low income families even worse,” she said.

Analysts said the US election was also influencing the situation after polls showing Donald Trump slipping in the race strengthened the dollar.Hillary Clinton’s lead in the US presidential race is also seen as a green light to the US central bank to raise interest rates in December or early next year.